CS - India Commercial Vehicles Sector - Errclub Where Are We in The Cycle

21 March 2016
Asia Pacific/India
Equity Research
Auto Parts & Equipment (Automobiles & Components IN (Asia))
India Commercial Vehicles

Sector
Research Analysts
Jatin Chawla
91 22 6777 3719
jatin.chawla@credit-suisse.com
Akshay Saxena
91 22 6777 3825
akshay.saxena@credit-suisse.com
THEME
Where are we in the cycle?

Figure 1: Despite a distinct slowdown in freight movement in the economy in
last five years, road not as badly impacted due to share gains from railways
12%
68%
10%
66%
8%
64%
6%
62%
4%
60%
2%
58%
0%
56%
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Total Freight transportation growth
FY11
FY12
FY13
FY14
FY15
FY16
% share of roads (RHS)
Source: MORTH, Planning Commission, Indian Railways, Credit Suisse estimates
Truck utilisations okay; weak economy offset by share gains from rail.
We have created a proprietary demand-supply model for the CV industry.
Our model suggests that despite high CV tonnage addition in the last few
years and a weak economy, truck utilisations levels are not low as road
freight has gained >5% share from railways since FY12. Apart from other
reasons, these share gains also reflect the fact that rail freight pricing is up
>50% since FY12 whilst road freight prices are flat since then.
Factors beyond the cycle equally important. Hence we expect the current
momentum in CV volumes to continue into FY17, aided by pre-buying on
account of BS-IV implementation. GST and DFC (Dedicated Freight
Corridor) are potential negatives for CVs but both have been delayed: GST
is likely only in FY18 or even later; DFC impact will be visible only in FY20.
Prefer Bosch, WABCO over Ashok Leyland. A continued momentum on
CVs is supportive of our positive stance on Tata Motors where JLR still
remains the core thesis. Ashok Leyland has both strong execution and a
favourable cycle going for it; however, valuations are just too rich for our
comfort. We continue to like the content stories in Bosch (link) and WABCO
over AL in the space. Both of these are plays on government's focus on
safety and pollution as well. We increase our FY17/18E earnings for Ashok
Leyland by 11%/7% and TP to Rs96 (from Rs86).
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making their investment decision.
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21 March 2016
Focus charts and table

Figure 2: Rail freight rates up >50% in last five years while
Figure 3: Railways have high share only in mined
road freight rates broadly flattish in the same period
commodities, roads better on rest
160.0
100%
80%
140.0
2%
29%
28%
40%
55%
60%
120.0
40%
100.0
85%
71%
60%
20%
80.0
45%
15%
0%
FY12
FY13
FY14
Road Freight Rates
FY15
FY16
98%
72%
Agri
Construction
Rail Freight Rates
Mining
Industry
Oil
Share of freight movement by roads
Rail
Consumer
Source: Indian Railways, IFTRT
Source: MORTH, Planning Commission
Figure 4: Roads have gained large market share in some
Figure 5: Despite sharp growth in truck tonnage supply
individual segments like mining, cement, etc.
added in, utilisations have remained under control
12%
Growth in freight Ton-km truck capacity (Supply)
20%
10%
Growth in road freight index (demand)
15%
8%
6%
10%
4%
5%
2%
0%
0%
Constr/ Cement
Agri
Mining
Industrial
-5%
Share gain by road (FY11-16)
Source: MORTH, Planning Commission, Credit Suisse estimates
Source: MORTH, Planning Commission, Credit Suisse estimates
Figure 6: Other factors that can influence CV demand over the next few years
Factor
Dedicated freight
corridor
GST
Comment
Rail also suffers from saturation on high demand routes,
Dedicated freight lines being added on the same
Trucks spend ~25% of time on check posts and other official
reasons. If state borders removed with GST, some time saved
Old Vehicles Ban
Proposal to ban >15-year-old trucks to control pollution
Emission norm
changes
Regulatory changes such as emission norms, compulsory ABS

pushes up vehicle price and leads to preponement of demand
Likely impact and timing

First phase (East + West) will add annual capacity of 150
bn ton-km (~12% of road freight). Will only come in FY20
Can free up system truck capacity by ~12% (equivalent to
year sales). Implementation likely to be delayed though
Incremental demand for ~200k trucks, implementation
big challenge as different customers of old and new CV
India moving to BS-IV in 2018 and BS-VI in 2020, hence
demand supported in FY17 and GY20 on pre-buying
Source: Company data, Credit Suisse estimates
Figure 8: We prefer Bosch and WABCO as content per
been highest in first two years of upcycle
vehicle stories over Ashok Leyland
Stock returns (indexed)
Figure 7: Ashok Leyland's stock returns have typically

Cycle1
800%
Cycle 2
Current (after
2013)
Cycle 3
36,000
24,000
After 2008
Market-share loss
but content increase
with shift to commonrail in BS4
BS6 adoption
of SCR
400%
12,000
After 2001
0%
0
200
400
600
800
1000
1200
1400
Number of days post cycle start

Source: the BLOOMBERG PROFESSIONAL service, SIAM
India Commercial Vehicles Sector
FY16E
FY17E
FY18E
FY19E
FY20E
FY21E
FY22E
M&HCV content increase (Rs/Vehicle)
21 March 2016
Where are we in the cycle?

Assessing the freight landscape
Most of the analysis on the CV cycle in India is a top-down analysis focusing on the
linkage between CV sales and GDP/IIP growth as there is not much data available on the
road freight sector in the country. We have attempted to construct a demand-supply model
for the CV industry in India. On the supply side, roads and railways dominate freight
carriage in the country. Whilst the share of roads has been consistently increasing at the
expense of railways, the trend has accelerated in the last five years on account of sharp
increase in railway freight costs and no significant increase on road freight pricing. We
have created a freight index for both road and railways based on the growth rates in key
segments such as mining, agriculture, industrial, consumer, etc.
Whilst overall freight growth has moderated from a 8% CAGR between FY04 and FY11 to
~4% between FY11 and FY16, road freight growth has only slowed down from 8% (FY0411) to ~6% only. Hence despite a weak economy, road freight growth has remained
reasonably strong on the back of the poor performance by railways (absolute freight
carried in FY16 will be lower than freight carried in FY12). Thus, road freight growth has
broadly remained in line with growth in freight tonnage km. This implies that, despite
strong CV growth, broadly fleet utilisations are normal and we do not see much of a risk to
the CV cycle in the next couple of years baring external factors.
Proprietary demand-supply
model for the CV industry
Despite a slowing economy

road freight growing on
share gains from railways
Factors beyond the cycle

With India moving to BS-IV emission norms on a nation-wide basis from Apr-17; FY17
demand will be boosted on account of pre-buying. Under the new government there is an
increasing focus on trying to control pollution and hence it has preponed BS-VI emission
norms (skipping BS-V completely) from FY25 to FY21 meaning FY20 demand will be
boosted by pre-buying. There is also an increased expectation that the government is likely
to ban trucks older than a certain age (12-15 years). However, our channel checks suggest
that rather than a blanket ban, the government could come up with a voluntary scrappage
scheme offering some incentive on purchase of new trucks (50% excise duty rebate).
The government is also trying to improve the performance of the Indian Railways: freight
pricing decisions have become more pragmatic and focus on railway capex bodes well for
the railway segment which has continuously been losing share to road freight. The
implementation of the western and eastern corridor of DFC by FY20 is likely to negatively
impact CV sales. The implementation of GST (whenever it happens) could result in a big
increase in freight carrying capacity. Trucks in India waste ~25% of their time on interstate borders and hence freight carrying capacity could increase dramatically if GST
allows free movement of goods between states. It could also aid a proper hub-and-spoke
model and result in a marked shift towards higher tonnage trucks where MNC players
such as Benz and Volvo have a better probability of succeeding.
Scrappage and emission

norms could have a positive
impact
whilst GST and DFC

could negatively impact CV
demand
Prefer Bosch, WABCO over AL

Given that the economy is on a gradual recovery path and the fact that any impact from
railway capex will not be felt until FY19/FY20, we believe the CV cycle is likely to remain
strong for the next couple of years. A continued momentum on CVs is supportive of our
Tata Motors call where JLR still remains the core thesis. Ashok Leyland has executed
really well in the last few years doing bothgaining share in almost every segment and
also improving cost structure since the new management team took over. However,
valuations are just too rich for our comfort. We continue to like the content stories in Bosch
and WABCO over AL in the space. As highlighted in our recent upgrade (Link), Bosch is
one of the main beneficiaries of the recent change in government's stancegreater
commitment to tackle the problem of pollution in the country. Wabco's content per vehicle
in India is a tenth of that in Europe. Its content per vehicle has been steadily growing (with
big jump in 3QFY16 on compulsory ABS implementation), and going forward too we see
increasing acceptance of Wabco's new products.
Expect CV cycle to remain

strong for now
21 March 2016
Sector valuation
Figure 9: Exposure by stock to domestic CV theme
Company
% revenues: domestic M&HCV's OEM
% of profits
Rating
Ashok Leyland
~75%
~75%
NEUTRAL
Target Price (Rs)

96
Eicher (Attributable)
~25%
~10%
NEUTRAL
19,200
Tata Motors
~10%
~10%
OUTPERFORM
Bharat Forge (Standalone)
~25%
~25%
NEUTRAL
Bosch
~30%
~30%
OUTPERFORM
22,500
Wabco
~50%
~60%
OUTPERFORM
6,400
Apollo Tyres
~12%
~10%
OUTPERFORM
200
470
860
Figure 10: Auto OEM valuation

Company
Currency
CMP
Market Cap
(LC)
(USD Bn)
P/E
EV/EBITDA
ROE
P/B
CY16/FY17 CY17/FY18 CY16/FY17 CY17/FY18 CY16/FY17 CY16/FY17
Global
Ford Motor Company
USD
14
64.7
6.9
6.6
4.7
4.4
26.9
1.6
General Motors Corp.
USD
32
49.4
5.8
5.6
2.7
2.6
21.0
1.1
Paccar Inc
USD
55
19.4
14.1
14.5
8.5
8.7
22.8
2.7
Daimler
EUR
67
81.1
7.9
7.6
3.3
3.2
16.7
1.3
Volkswagen
EUR
117
70.3
6.5
5.2
3.0
2.9
8.5
0.6
Volvo
SEK
88
17.3
13.5
11.3
5.5
4.8
16.7
1.9
Renault
EUR
86
26.5
7.1
6.2
4.1
3.7
11.7
0.8
Hyundai Motor Company
KRW
150,500
29.3
5.8
5.6
3.4
3.3
10.2
0.6
Toyota Motor
JPY
5,888
162.3
7.8
7.2
4.5
4.2
12.4
0.9
Honda Motor
JPY
3,058
49.4
9.2
8.2
3.5
3.2
7.9
0.7
Nissan Motor
JPY
1,061
39.9
7.5
6.8
3.3
3.1
11.2
0.8
Weichai Power Co. Ltd
CNY
5.0
13.5
13.1
2.6
2.2
5.7
0.9
India
Tata Motors Ltd.
INR
366
16.3
7.9
6.7
3.3
2.9
18.4
1.0
Mahindra & Mahindra
INR
1,222
11.5
17.9
15.5
12.5
10.7
17.3
2.9
Ashok Leyland Ltd
INR
97
4.4
18.8
15.5
11.6
9.8
23.6
4.2
ROE
P/B
Figure 11: Auto-components valuation

Company
Currency
CMP
Market Cap
(LC)
(USD Bn)
P/E
EV/EBITDA
CY15/FY16 CY16/FY17 CY15/FY16 CY16/FY17 CY15/FY16 CY15/FY16
Global
Continental
EUR
196
44.1
12.8
11.9
6.3
5.7
21.5
2.6
Denso
JPY
4,312
30.7
11.9
10.8
5.3
4.9
8.5
1.0
Johnson Controls Inc
USD
39
25.2
10.3
9.3
7.7
6.7
19.2
2.1
Delphi
USD
73
20.0
12.0
10.4
8.1
7.1
60.1
6.1
Magna International
USD
43
17.2
8.3
7.3
5.4
5.0
22.1
1.5
BorgWarner, Inc.
USD
38
8.3
11.7
10.5
6.9
6.4
19.3
2.2
Valeo
EUR
134
12.0
12.9
11.5
5.5
5.0
21.4
2.5
Autoliv
USD
113
9.9
16.6
15.2
8.2
7.4
16.5
2.7
CNH Industrial
EUR
9.5
19.1
15.4
7.6
7.3
5.2
1.4
Bosch Ltd.
INR
18,782
9.1
39.5
31.2
16.4
6.2
Motherson Sumi Systems
INR
250
5.0
18.9
15.4
7.8
6.3
36.0
6.4
Bharat Forge Limited
INR
847
3.1
21.2
17.4
12.2
10.3
21.0
4.2
Exide Industries
INR
136
1.7
17.1
15.2
10.0
8.9
14.3
2.4
Apollo Tyres
INR
177
1.4
8.3
7.6
5.5
5.2
16.5
1.3
Wabco India Ltd.
INR
5,435
1.6
35.3
28.0
24.4
19.1
23.9
7.8
India
Source: Company data, I/B/E/S Datastream. Note: All estimates are consensus estimates, 2016 refers to Mar-2017 for Indian and Japanese
companies, Dec-2016 for others. Price as of close of 18-Mar-16
21 March 2016
Assessing the freight landscape

Most of the analysis on the CV cycle in India is a top-down analysis focusing on the
linkage between CV sales and GDP/IIP growth as there is not much data available on the
road freight sector. We have attempted to construct a demand-supply model for the CV
industry in India. On the supply side, roads and railways dominate the freight carriage in
the country. Whilst the share of roads has been consistently increasing at the expense of
railways, the trend has accelerated in the last four years on account of sharp freight
increase in railways and no significant increase in road freight pricing. On the demand side,
the road freight carried can be broadly divided into following segments (1) mining, (2)
agriculture, (3) industrial, (4) construction, (5) consumer, (6) oil and (7) others. We have
created a freight index for both road and railways based on the growth rates in these.
Whilst overall freight growth has moderated from an 8% CAGR between FY04 and FY11
to ~4% between FY11 and FY16, road freight growth has only slowed down from 8%
(FY04 to FY11) to ~6% only. Hence, despite a weak economy, road freight growth has
remained reasonably strong on the back of the poor performance by railways (absolute
freight carried in FY16 will be lower than freight carried in FY12). Thus, road freight growth
has broadly remained in line with growth in freight tonnage km. This implies that despite
strong CV growth broadly, fleet utilisations are normal, and we dont see much of a risk to
the CV cycle in the next couple of years barring external factors.
Supply side
Freight movement in any country can be through variety of means such as railways, roads,
waterways (both inland and coastal shipping), airways among others. As per Planning
Commission's study, total freight traffic during 2007-08 amounted to 2,555 million tonnes
and 1,409 bn tonne km (which takes into account the weight of freight multiplied by
distance carried). Some of the modes have limitations waterways have geographic
limitations of operations being confined to limited pathways, movement by pipelines is
confined to liquid products while airways cater to just low volume, non-bulk high value
goods on select routes.
Hence, the two main modes in India are roadways and railways. Around 60% of freight by
weight (tonnage) is carried by roads. While trains typically ply longer distances, even on
ton-km basis, roads remain by far the biggest as >50% of the freight traffic (in ton-km) is
carried by road transport followed by railways at ~35%. This is as of FY08 and as
discussed below, road share would have further grown at cost of railways since then.
Figure 12: Road and railways dominant freight
Figure 13: both in terms of tonnage and Ton Km
movement
Shipping
2%
Pipeline
5%
Shipping
6%
Rail
31%
Road
62%
Pipeline
8%
Rail
36%
Road
50%
Share of Tonnage
Source: Planning Commission
Share of Ton Kms

21 March 2016
Railways: In India, railways is a state-owned enterprise operated by the Govt. of India

through the ministry of railways. It had an 85% share in freight traffic in 195051 which has
now come down to under 35%. One of the reasons for the same is the rail infrastructure
where expansion has been very slow. Currently, Indian trains are already running at nearfull capacity with regards to track availability. There have been severe investment
constraints which have made it difficult for the railways to cope with the continued pick-up
in freight demand, especially since 1990's when the economy opened up. Anyways,
railways output suffers as the average freight train speed in India is just ~25 km/h as
compared to over 40 km/h in the US.
Figure 14: Share of railways has come down over the
Figure 15: ..last five years have witnessed further share
years with a sharp fall particularly in the 1990s
losses as rail freight grew at only ~1% CAGR
100%
700,000
10%
650,000
5%
600,000
0%
80%
60%
40%
20%
0%
550,000
1950-51
1960-61
1970-71
1980-81
1990-91
-5%
2000-01 Current(Est)
2011
Railways share in Ton-km
2012
2013
2014
Rail Freight (NTkm)
Source: National Transport Development Policy Committee
2015
2016
YoY Growth
Source: Indian Railways
The other reason for the same is that cost competitiveness of Indian railways has also
gone down over the years. In the last five years, growth in rail freight (ton-km) has been
just ~1% CAGR. In the same period average rail freight charges (calculated as rail freight
earnings divided by freight ton-km) has increased by a whopping ~60%. Indian Railways
earns more than two-thirds of its revenue from freight traffic. Given political compulsions,
there is always a reluctance in increasing passenger fares, and hence successive
governments have chosen to increase freight rates instead.
Figure 16: Rail passenger losses have spiked and they
Figure 17: ..rail freight rates up ~60% in last 5 years
had to be subsidised by freight..

400
1,200,000
1.8
1,000,000
1.5
800,000
1.2
600,000
0.9
150
400,000
0.6
100
200,000
0.3
350
300
250
200
50
0.0
2011
0
2001
2006
2008
2010
2012
Rail Passenger services losses (Rs Bn)
2014
2012
2013
Rail freight earnings (Rs Mn)
2014
2015
2016
Freight Mn Ton-Km
Freight rate (Rs/ Ton km) (RHS)
21 March 2016
Figure 18: Across commodities there has been a sharp increase in rail freights
2.5
Rail Freight rate (Rs/ Ton Km)

2
1.5
0.5
0
Coal
Iron-Ore
Cement
FY11
FY12
Food-grains
FY13
FY14
Fertilizers
FY15
Oil
Container
FY16
Roadways: Unlike railways, the road freight sector has largely been in the hands of
private operators (of which large part is unorganised). While national highways make up
only ~3% of the overall road network by length, they account for around 40% of the road
freight traffic. We refer to studies by the Planning Commission and Ministry of road
transport and highways (MORTH) for the road freight data (both are slightly dated though
and hence we have used some extrapolation).
The road sector particularly took off in 1990s once the government started investing in
building roads (NHAI formed in 1995). In the 1990s, road freight had witnessed a ~15%
CAGR rapidly gaining share from railways. As highlighted above, in the last few years
there have been further share gain by roads. We expect road freight has now likely grown
to ~1300 bn ton-kms (~6% CAGR in the last five years versus ~1% in railways). Proportion
of roads to railways in freight (in terms of ton-Km) would now have grown to 2:1 versus
1.5:1 in FY10.
Figure 19: Road freight took off in 1990s
Figure 20: 70% of CVs are held in fleet of less than 10
1,500
25-49 trucks
7%
50+
6%
Single truck
owner
11%
1,200
900
2-4 trucks
20%
10-24 trucks
18%
600
300
5-9 trucks
38%
0
1950-51 1960-61 1970-71 1980-81 1990-91 1999-00 2004-05 201516E
Road Freight (Bn Ton-Km)
Source: MORTH
Truck ownership pattern

Source: MORTH
The Indian trucking segment is highly fragmented, with ~70% of the trucks being held in
fleet of less than 10 trucks. Between the consignor (sender) and the consignee (receiver)
of goods, there exist different intermediaries such as transport booking agents, transport
21 March 2016
operators, brokers and vehicle owners. Consignors give the order to transport operators
either directly or through transport agent. The transport operator may have his own fleet
but in case not or if it is occupied, he contacts other transport operators (small truck
owners) through a broker. It is ultimately these vehicle owners who actually transport the
goods from the consignor to the consignee
Figure 21: Basic model of transportation of goods by road transport
Source: MORTH
Comparison with other countries

The freight movement in a country is a function of its GDP as higher economic activity is
typically associated with greater transportation of goods. Hence freight movement is
higher in developed countries. As per Statista, among the major regions globally, freight
transportation is highest in China followed by the US (even though US has higher GDP).
One reason for this is the higher contribution of services to US GDP at ~80% (versus
~50% for China) as manufacturing and agriculture entails greater movement of bulky
goods vis-a vis services.
As for the mode of transportation, share of roadways in India is on the higher side. Both
China and USA have much greater usage of both railways and waterways indicating
greater efficiency as these modes consume lower energy, do less environmental damage
and are also cheaper in the long run.
Figure 22: Freight movement is related to GDP of the
Figure 23: Share of roadways in India on higher side as
country and share of agri, manufacturing, services
USA, China have higher share of rail and waterways
7,500
18,000
120%
Split of 2010 Freight (Ton-Km )

100%
14%
5,000
12,000
80%
23%
50%
60%
2,500
6,000
40%
45%
72%
65%
0
China
USA
Europe
Freight movement 2010 (Bn Ton Kms)
Source: Statista
Russia
India
Brazil
2010 Nominal GDP USD Bn (RHS)
88%
63%
20%
0
31%
37%
32%
36%
23%
9%
0%
Europe
Brazil
India
Road
Rail
USA
China
Russia
Waterways
Source: Statista, McKinsey
21 March 2016
Demand side
We look at the drivers behind freight movement by segregating it into broad categories for
both railways and roads. For railways, a detailed periodic break-up of commodity
movement (both in terms of tonnage and ton-kms) is available. There is disproportionately
high dependence on mined commodities such as coal. As discussed above, in the last five
years overall growth in ton-kms has been ~1% CAGR only. There has been a large
decline in iron-ore (function of falling production of the commodity due to mining ban),
however other commodities have also seen muted low single-digit growth only.
Figure 24: Break-up of rail freight: Higher dependence on
Figure 25: Muted growth in all categories in last few years
mined commodities like Coal

4%
Others
16%
2%
Oil
4%
0%
Coal
44%
Fertilizers
7%
-2%
-4%
Foodgrains
9%
-6%
Cement
9% Steel
6%
-8%
Iron-Ore
5%
Railways Ton kms - split (FY16)

5 year CAGR in railways (Ton-km)
Unlike railways, there is lack of sufficient data on road freight, and we refer to two different
studies by the Planning Commission and MORTH. The results of both of these
approximately match, though there is some difference as the Planning Commission
classifies larger part as miscellaneous (others). On an aggregate basis the largest freight
movement in the country is for mined commodities (coal, iron-ore, etc.) followed by
agriculture commodities and industrial goods. However for roads, industrial goods and agri
are more relevant as a large part of mined commodities movement is through railways. Ex
mining, most other commodities have a very high dependence on roads.
Figure 26: As per different government sources, road
Figure 27: with industrial goods and agri the biggest
freight split is well diversified
contributor followed by consumer goods
Consumer
13%
Others
1%
Others
18%
Agri
23%
Agri
22%
Oil
7%
Construction
17%
Mining/Industry
40%
Roadways Ton Kms - split (Source 1)

Source: MORTH
Consumer
13%
Construction
10%
Oil
6%
Mining
7%
Industry
23%
Roadways Ton Kms - split (Source 2)

21 March 2016
Choice of a mode for transport of goods is based on the nature of commodity, volume and
cost. Typically, transport of high volume bulk commodities meant for movement over long
distances tends to be through rail transport. However even for these, road transport does
play a complimentary role for last mile movement as last mile connectivity for rail is not
always available. Also whilst railways might be cheaper in terms of cost per km; given the
inflexible timing and the delays in loading/unloading, roads usually have a much higher
share for shorter distances whereas for longer distances railways are preferred.
Hence not surprisingly road has a consistently high share in movement of most
commodities, barring few such as coal, iron-ore, limestone, fertilisers among others which
are dominantly through railways; for some of these railways has last mile connectivity as
well. For consumer goods which have to be distributed to a large number of distribution
outlets; roads are the default choice.
Figure 28: Railways have high share only in mined commodities, roads better on rest
100%
80%
2%
29%
28%
40%
55%
60%
85%
98%
40%
71%
72%
60%
45%
20%
15%
0%
Agri
Construction
Mining
Industry
Share of freight movement by roads
Oil
Consumer
Rail
Figure 29: Share of railways is higher for longer distances

120%
120%
Cement split by distance slab

100%
120%
Fertilizer split by distance slab

100%
Rice split by distance slab

100%
15%
29%
80%
60%
51%
79%
60%
40%
71%
49%
20%
39%
80%
60%
79%
85%
40%
93%
40%
64%
20%
20%
21%
0%
0%
Upto 200 kms 200-500 kms
500+ kms
% share road
80%
61%
21%
% share Rail
36%
80%
7%
0%
% share Rail
500+ kms
20%
% share road
% share Rail
500+ kms
% share road
Bottom-up analysis of freight generating sectors

We also attempt to do a bottom-up analysis of these core freight generating sectors and
how growth in each of these correlate to CV demand. For each of these sectors, we take a
quantifiable parameter which either gives the direct growth in that category (cement
10
21 March 2016
production) or acts as a proxy (such as IIP or the relevant GDP parameter). We have tried
to eliminate the pricing impact and just look at the volume data (which is more relevant)
wherever possible hence the usage of real GDP growth parameters.
Figure 30: Overview of road transportation demand by segment
Category
Measurable parameters
Agri
Agri GDP growth
Industrial Goods
GFC (Gross fixed capital) growth
Mining
Coal and Iron-Ore production (including imports)
Construction
Cement production
Consumer
GDP (Consumption) growth
Oil
Petroleum Products
Source: MORTH, Credit Suisse estimates
Using the actual freight data for roads in FY10 as per MORTH and adding the rail freight
data to that, we arrive at the total freight industry data for FY10. Then based on the
movement in above parameters, we construct time-series of freight movement in the
economy. Given that actual data for railways is anyways available, we just deduct the
same from total freight movement to arrive at the roads freight data.
Figure 31: As expected freight growth for economy has
Figure 32: While consumer has held up well, decline in
slowed from FY11-16 (compared to FY04-11)
other segments
12%
16.0%
Total Freight growth by

segment
10%
12.0%
8%
8.0%
6%
4%
4.0%
2%
0.0%
0%
FY04
FY06
FY08
FY10
FY12
Total Freight transportation growth
FY14
FY16
Constr/
Cement
Agri
FY04-11 (CAGR)
Mining
Industrial
Consumer
FY11-16 (CAGR)
There has been a distinct slowdown in the overall freight transportation growth in the
country reflecting the economic slowdown. From an ~8% CAGR growth in FY04-11, it
slowed down to ~4% CAGR from FY11-16. However, there has been variance in growth
between road and rail (while growth rates were similar in FY04-11 period, since then road
freight has grown at 6% CAGR versus 1% growth in railways.)
11
21 March 2016
Figure 33: Wide variance in growth between road and rail
Figure 34: Road has gained ~500 bps share in last five
in the last five years
years
9.0%
68%
Freight growth
66%
64%
6.0%
62%
60%
3.0%
58%
56%
0.0%
54%
Total
Roads
FY04-11 (CAGR)
Railways
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
FY11-16 (CAGR)
% share of roads (RHS)
Railways losing share over the years has been a function of two parameters
(1) Slower growth in segments such as mining where rail has high share versus higher
growth in consumer where it has lower share
(2) Roads gaining share in individual segments most prominently in mining. One of the
reasons why the share in mining has switched is the switch in coal and iron ore from
domestic usage to imports as rail connectivity is in place only for domestic production.
Figure 35: Rail losing share function of lower growth in
Figure 36: and road also gaining share in some
segments which have high contribution to it..
individual segments like mining, cement, etc.
60%
8.0%
7.0%
50%
12%
10%
6.0%
40%
5.0%
30%
4.0%
8%
6%
3.0%
20%
2.0%
10%
1.0%
0%
0.0%
Mining
Industrial
Contribution to rail (FY11)
Constr/
Cement
Agri
Consumer
Segment growth - FY11-16 (CAGR)
4%
2%
0%
Constr/ Cement
Agri
Mining
Industrial
Share gain by road (FY11-16)
Industry commentary suggests that the rapid growth in M&HCV in last two years has
largely been the function of replacement demand coming to fore as freight operator's had
postponed replacement in downcycle years of FY13-14. Growth was initially fuelled by
consumer goods which led to higher growth in haulage trucks with tippers continuing to
suffer as mining activity slowed down. Recently, tippers have also started to grow in
anticipation of infrastructural activity picking up.
12
21 March 2016
Going forward, the outlook of most of these freight generating sectors is stable to positive,
hence that spells well for continued buoyancy in CV demand ahead. However, we note
that replacement demand contribution (which was key demand driver in each of FY15 and
FY16) may moderate slightly.
Figure 37: Outlook of most freight generating sectors is stable to positive
Segment
Strength
Comments
Agri output in the last two years has been weak as crop yield got impacted with two consecutive years of poor
monsoon; early weather forecasts indicate good monsoon this year which should result in higher crop output.
However, monsoon forecasts have not always been accurate and that remains a wild-card
Indian investment cycle has been weak for past several years and as per our capital goods team it is poised
to recover on the back of more favourable macro-economic conditions and policy direction. However, current
momentum is still relatively weak particularly private industrial investment. While smaller projects may start,
big ticket investments in sectors such as power and metals will take two to three years
Some commodities such as iron-ore have seen a sharp drop in last few years due to mining bans imposed in
various states by courts, even though coal (which is bigger contributor) has held up well. Our metals team
expects Coal India production to increase driven by better rake availability, de-bottlenecking of mines and
opening up of new mines; while iron-ore will also normalise as mining ban is gradually being freed
Construction
Slowdown in last few years as cement demand growth (proxy for construction activity) had slowed to 3% in
last three years versus long-term average of 8%. CS expects recovery in FY17/18 with higher government
infrastructural spending (already pick-up in public sector investments like roads) along with higher allocation
for rural and urban housing; implementation of pay commission should also provide housing boost
Consumer
Agri
Industrial Goods
Mining
Oil
Consumption had also slowed in FY13-15 especially durables (discretionary), even though volume growth in
non-durables (staples) has held up well. Expect pick-up ahead: already signs of green-shoots in categories
like autos; pay commission implementation in FY17 will also be a big driver.
Oil consumption in volume terms has been strong this year helped by sharp drop in oil prices. While growth
rates could fall due to high base, we expect demand to remain steady supported by higher consumption of
both diesel (gradual economic recovery) and petrol (shift to scooters in 2W's), along with OMC's driving
penetration of LPG dealers in East. Already strong so no significant delta here.
Tonnage addition has been much ahead of sales growth

In the last two years in the CV cycle recovery there has been a much faster growth in
heavy trucks (>25T). While M&HCV volumes for the industry have witnessed a 22%
CAGR over FY14-16E, there has been ~60% CAGR in >25T trucks. Whilst the downturn
years of FY13 and FY14 also saw a sharper fall in heavy trucks, the recovery post that has
been much sharper in them as compared to the industry. The current share of >25T trucks
in the M&HCV industry is well beyond its peak level in the last 15 years.
Figure 38: This cycle has seen sharp growth in heavy
Figure 39: ..which is by far the highest ever in last 15
trucks with big increase in share of >25T trucks..
years
100%
40%
13%
22%
27%
23%
22%
80%
60%
33%
35%
37%
30%
51%
46%
40%
38%
25%
38%
35%
34%
40%
20%
15%
18%
21%
17%
19%
18%
15%
14%
17%
FY10
FY11
FY12
FY13
20%
21%
16%
15%
19%
16%
15%
FY14
FY15
FY16YTD
10%
5%
0%
0%
Buses
ICV (7.5-12T)
Source: SIAM
12T-25T
FY02
FY04
FY06
FY08
FY10
FY12
FY14
FY16YTD
Share of >25T within M&HCV's
>25T
Source: SIAM
13
21 March 2016
This also implies that growth of tonnage addition in the system (Volumes multiplied by
weight of truck) has been well ahead of the volume growth. We assume a 15-year lifecycle
to find the current population of trucks plying on Indian roads. Considering that on an
average they ply ~50k kms a year, we calculate the freight carrying capacity by trucks in
the system or in other words the supply. This parameter has seen slight acceleration in the
last two years given the pick-up in volumes and greater sales of heavy trucks.
Figure 40: In both of the last two years tonnage addition
Figure 41: Assuming a 15-year life, steady growth has
growth has been well ahead of volume growth
continued in system capacity addition
50%
3,200
16%
2,400
12%
1,600
8%
800
4%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
FY10
FY11
FY12
FY13
M&HCV tonnage added growth
FY14
FY15
M&HCV volumes growth
Source: SIAM, Credit Suisse estimates
FY16E
0%
FY05
FY07
FY09
FY11
FY13
Bn TKM CV capacity (Assuming 15 year old life)
FY15
FY17E
YoY growth
but utilisations levels still remain OK

While some of the factors discussed above high truck tonnage growth even though the
economy had slowed down may be a potential cause of concern, the fact that roads have
gained share from railways means that utilisations have remained under control. From
FY11 to FY16, the growth in system supply (Ton-km of trucks) would be ~8% CAGR. This
is not too different from the road freight transportation growth rate at ~6% CAGR in the
period. Given expectations ahead of further pick-up in freight generating sectors (Figure
37), CV volumes should continue to grow for the next two years barring external factors.
Figure 42: Despite sharp growth in truck tonnage supply added in last few years, the fact
that utilisations have remained under control means no cause of concern
20%
Assuming pick-up in freight

demand in FY17
15%
10%
5%
0%
-5%
Growth in freight Ton-km truck capacity (Supply)
Growth in road freight index (demand)
Source: MORTH, Planning Commission, Indian Railways, SIAM, Credit Suisse estimates
14
21 March 2016
Factors beyond the cycle

With India moving to BS-IV emission norms on a nation-wide basis from Apr-17, FY17
demand will be boosted on account of pre-buying. Under the new government, there is an
increasing focus on trying to control pollution, and hence it has preponed BS-VI emission
norms (skipping BS-V completely) from FY25 to FY21 meaning FY20 demand will be boosted
by pre-buying. There is also an increased expectation that the government is likely to ban
trucks older than a certain age (12 to 15 years). However, our channel checks suggest that
rather than a blanket ban, the government is likely to come up with a voluntary scrappage
scheme offering some incentive on purchase of new trucks (50% excise duty rebate).
The government is also trying to improve the performance of the Indian Railways freight
pricing decisions have become more pragmatic, and focus on railway capex bodes well for
the railway segment which has continuously been losing share to road freight. The
implementation of the western and eastern corridors of DFC by FY20 is likely to negatively
impact CV sales. The implementation of GST (whenever it happens) could result in a big
increase in freight carrying capacity. Trucks in India waste ~25% of their time on interstate borders, and hence freight carrying capacity could increase dramatically if GST
allows free movement of goods between states. It could also aid a proper hub and spoke
model and result in a shift in the market towards more higher tonnage trucks.
#1. Dedicated freight corridor

As discussed in the previous section, share of Indian railways in freight transportation is on
the lower side compared to global average. Moreover, it has been losing share to roads
over the years due to lack of enough track capacity and lower competitiveness vis--vis
roads (on account of rail freight having to subsidise passenger losses). This also makes
for higher inefficiency in the system, as railways in general consume lower energy, do less
environment damage and are also cheaper.
One project which has for long been expected to change this is the Dedicated Freight
Corridor (DFC), an ambitious plan aimed at supplementing the rail transport capacity. This
project envisions the construction of two dedicated freight railway lines along the two busy
(Eastern and Western) trunk routes. The existing trunk routes of Howrah-Delhi on the
Eastern Corridor and Mumbai-Delhi on the Western Corridor are highly saturated with line
capacity utilization well exceeding 100%. The two main routes planned include:
Western DFC (1,550 kms): From Mumbai to Delhi. This would cater to transport
requirements between emerging ports on west coast and the northern hinterland.
Eastern DFC (1,850 kms): From Ludhiana in Punjab to Kolkata. This route is expected
to largely fulfill coal and steel transport requirements.
Figure 43: Dedicated freight corridor details of western and Eastern corridor
Phase
Section
Length (kms)
Original completion date
Latest Status
Phase I
Rewari - Vadodara
930
2011-2017
June-2018
Phase II
Vadodara - JNPT
430
2012-2018
Oct-2019
Phase III
Rewari - Dadri
140
2013-2018
Mar-2019
Western Corridor
Western Corridor total
1,500
Eastern Corridor
Phase I-APL1
Khurja - Kanpur
343
2011-2017
Mar-2018
Phase II-APL2
Kanpur - Mughalsarai
402
2013-2018
Dec-2018
Phase III-APL3
Khurja - Ludhiana, Khurja-Dadri
447
2014-2019
Dec-2019
Dankuni - Sonnagar
538
2014-2019
Not finalized
118
2010-2016
Dec-2017
Phase IV
Phase IVa
Sonnagar - Mughalsarai
Eastern Corridor total
1,850
Source: Company data, Govt of India, Credit Suisse estimates
15
21 March 2016
In the recent rail budget, India's rail minster also announced three more freight corridors:
North-South, East-West and East Coast. DFC once finished can be a game changer for
railways. Other than its ability to handle more volumes with higher capacity it will also bring
more predictability (currently rail transport takes inordinate time with no guarantees as
passenger trains always get priority on tracks). While the original plan was to complete the
DFC by 2017, it is running with a lag (delays with land acquisition, awarding of projects,
etc.) and is expected to be completed with a two-year lag. We expect the railways to start
regaining some of the lost share to roads once the DFC becomes operational by FY20.
The immediate impact will be on the regions through which DFC passes.
Figure 44: While south is the biggest contributor to road freight, over ~60% of movement
in North, East and West which will be impacted by the first two phases of DFC
Central
5%
North
22%
South
32%
West
20%
Split of road freight
East
21%
Source: MORTH
New government's focus on reviving railways: While Indian railways has suffered from
years of neglect, in the last two years with the new government there has been a step-up
in investments. The government is cognizant of weak growth in freight business (in volume
terms or Ton-km) in the last few years and that is why in the recent rail budget there was
no rise in freight rates despite stretched finances.
In FY16, there was a sharp 70% YoY increase in capex spend by railways to Rs1 tn,
though our industrials team has highlighted that it possibly contained some non-cash
spend pertaining to Metro project. The expenditure on construction of new lines, doubling
and gauge conversion has risen significantly compared with previous years, as the
process for tendering and other approvals have been streamlined. Dedicated freight
corridor (DFC) spend, while lower than budgeted, was also up 245% YoY.
However even with large increase in nominal capex, physical targets (electrification, gauge
conversion, new lines, rolling stock) have been flattish over the last several years. Unit
costs particularly for new lines/doubling have gone up 200-300% driven by land acquisition
costs.
16
21 March 2016
Figure 45: Sharp increase in capex spend on railways in FY16, will continue in FY17
(INR bn)
2012
2013
2014
2015
2016 BE
2016 RE
% yoy
2017 BE
New lines (construction)
53
53
58
71
128
135
88.9
156
% yoy
15.6
Gauge conversion/ doubling
57
60
67
83
263
145
74.1
307
111.6
Rolling stock
42.9
164
184
175
165
193
191
15.8
273
Locomotives
64
79
91
81
95
89
10.0
103
15.0
Carriages
45
54
52
55
44
41
(26.0)
91
122.7
Wagons
44
50
31
27
45
36
31.0
59
67.0
Others
11
10
25
2,343.7
19
(22.9)
Leased Assets
35
42
50
54
63
63
15.5
70
11.2
Road safety, track renewals
69
73
74
80
82
86
6.6
138
61.2
Electrification, S&T
17
19
22
24
33
31
30.1
44
39.6
Inv. in DFC, IRFC, RVNL, others
26
34
47
51
158
70
35.9
111
58.3
13
12
15
93
53
245.1
76
42.9
10
12
10
20
234
2,251.3
14
(94.0)
DFC
Metro transport projects
Others
19
28
38
47
59
46
(3.9)
58
27.7
Total
451
504
540
587
1,000
1,000
70.3
1,170
17.0
Source: Indian Railways, Credit Suisse research. BE Budget estimate, RE Revised estimate
Figure 46: Investment plan (physical targets) in FY17E

2010
2011
2012
2013
2014
2015 2016BE 2016RE 2017BE
Electrification (kms)
1,117
975
1,165
1,317
1,350
1,375
1,600
1,600
2,000
Track renewals (kms)
3,841 3,465
3,300
3,296
2,100
2,424
2,500
2,350
1,500
258
709
727
501
450
313
300
500
400
1,516
837
856
575
404
527
500
800
800
Locomotives
498
527
582
678
675
605
636
710
747
- Diesel
258
267
284
348
375
355
375
430
467
- Electric
240
260
298
330
300
250
261
280
280
3,637
4,023
4,085
3,731
3,390
3,592
3,431
Construction of new lines (kms)

Gauge conversion (kms)
Rolling stock
Coaches
3,494 3,660
Wagons
13,068 14,703 18,357 16,894 15,666 11,151 16,800 12,814 12,000
Source: Indian Railways, Credit Suisse research. BE Budget estimate, RE Revised estimate
#2. GST
While there is lot of uncertainty surrounding the timing of GST (Goods and Service tax), its
implementation is likely to be structurally negative for CVs. It will result in a reduction in
truck prices; however, the proposal to remove the 1% CST if accepted could result in free
movement of trucks across states, which would improve the productivity of trucks and
result in excess fleet capacity and may impact truck demand for a couple of years.
Currently, there is lot of inefficiency in the road freight system in the country on an
average a truck covers a distance of 50-70k kms per year versus 100-150k kms in
advanced countries. As per MORTH study the total round trip time varies from 21 hours
for a trip of 100-499 km, to about 50 hours for a trip of 500-999 km, and 110 hours for a
trip of over 1,000 km. However, the actual running time as a percentage of total time for
the same trips is only 33%, 36% and 43%, respectively (40% overall). The major reason
for this is the large time lost at check posts and for other official reasons (works out to
~25% of total time spent), on account of existence of inter-State barriers.
If state borders are removed with GST, then trucks can ply a lot more distance in a day;
recent measures like trying to convert all toll nakas into electronic toll nakas could also help
with that. This would mean an increase in fleet capacity in the system. It might also have an
indirect impact on market structure, as this would lead to a preference for higher powered and
faster trucks with focus on optimising logistics (helping MNC players such Bharat Benz and
17
21 March 2016
hurting incumbent Indian players). So not only will industry volumes go down for a couple of
years, market share of Indian players will also be negatively impacted by GST.
Assuming that with GST the total time spent on check posts and for other official reasons,
comes down from 25% to 20% (some of the stops will still be there for general checks,
etc.) it will result in 12% increase in running time (from current 40% of total time to 45%).
This translates into freeing up of system capacity by 12%, which at current population of 3
mn trucks works into 360k units (or more than a year of truck sales). Hence it can have an
adverse impact on demand for a couple of years.
Figure 47: Trucks in India on an average ply much lower
Figure 48: ..Actual running time as % of time spent on trip
distance than global average..
is only 40%due to time loss at check posts, etc.
150,000
Check posts
16%
Running time
40%
100,000
Other official
stoppages
8%
Repairs en
route
5%
50,000
Fuelling en
route
6%
Other halts
3%
Traffic hurdles
9%
0
India
Developed countries
Rest and meals

13%
Average distance covered per year by trucks (kms)
Source: MORTH
Source: MORTH
#3. Ban on old vehicles

There has been an expectation for some time that in a bid to control pollution the
government is planning to ban CVs more than 15 years old from plying on roads.
Theoretically, if this proposal were to come through, it can be a big driver of CV sales.
Given the lack of population data, varied estimates are available on the number of trucks
in the country which might have to go off the road with this measure. For this purpose, we
assume that the lifecycle of a truck is 20 years old and hence all the trucks which were
sold 15 to 20 years back will be impacted. Current fleet of M&HCV trucks between 15 and
20 years old is ~400K (or in other words addition of sales of trucks sold from FY-1997 to
FY-2001).
18
21 March 2016
Figure 49: Assuming 20 year life-cycle there will be ~400k
Figure 50: FY17/18 can be big years for CV demand with
M&HCV trucks more than 15 years old which might have
this ban, leading to ~30% incremental volumes over
to go off the road if ban comes through
normal ~12% growth, though FY19 will go back to normal
3,500,000
500,000
500,000
35%
2,800,000
400,000
400,000
28%
2,100,000
300,000
300,000
21%
1,400,000
200,000
200,000
14%
700,000
100,000
100,000
7%
0
FY10
FY11
FY12
FY13
FY14
FY15
FY16E
0%
FY16
FY17E
FY18E
FY19E
Sales of M&HCV trucks in last 15 years
Normal M&HCV volumes (if ~12% growth)
Sales of M&HCV trucks in last 20 years
With scrappage (100k extra in both FY17 and FY18)
Trucks between 15-20 years (Assuming 20 years lifecycle) (RHS)
Incremental Volumes (RHS)
While 400k units is no doubt a big number considering that annual M&HCV sales in the
country are 300k units, some other factors to consider:(1) Some of this trucks might already have been scrapped.
(2) These trucks are likely operating at lower utilisations (compared to nation-wide fleet
utilisation) hence lower amount of trucks will needed to be replaced. Alternatively
new M&HCV might not be required and LCV can do the same job.
(3) These trucks are likely plying in rural areas, so all will not be able to be replaced
because of lower ability of people in these areas to afford a new vehicle.
Considering the above factors, we can assume that 50% of these 15-20 year old trucks
will need to be replaced or ~200k units. Assuming this happens over two years (over FY17
and FY18) given capacity constraints and also the fact that government will give time,
FY17 and FY18 M&HCV volumes for the industry will be ~30% higher than normal ~15%
growth, in our view. However, normal cycle should resume from FY19, as this will be a
one-time replacement which is required.
Implementation will be bigger challenge: We feel that even if the government were to
come up with something on these lines, the biggest challenge will be in implementing the
same. Given that most of these trucks would be lying on smaller routes, their owners
would not be that well-off (larger freight operators anyways replace after 5-6 years).
The government can come up with measures such as cash for clunkers (which in past has
been very successful in stimulating demand in developed countries after the crisis). There
have been talks about a 50% excise rebate on new vehicle, if someone scraps a greater
than 15-year old truck. But given that these customers would have anyways gone for a
second hand truck purchase only (say a 10-year old truck), there is limited utility of such a
move.
Overloading ban: One of the other banes of the Indian truck industry is the prominence of
overloading. Typically freight operators engage trucks to much greater freight than the
authorised tonnage to cut costs and increase effective margins. This however leads to
greater environment damage pollution, faster deterioration of roads and is also harmful
on safety grounds (leads to more road fatalities).
The Supreme Court had in November 2005 given a judgement against overloading; at that
time golden tokens were issued that allowed overloading of trucks after payments of fixed
19
21 March 2016
charges which Supreme Court had stopped. This led to a sales surge from Dec-2005 as
after a 3% growth in CY05, M&HCV industry grew at 32% in 2006. However even today
overloading continues to exist and if the government were to come up on tough measures
on this front, it can be a driver of CV sales.
#4. Emission norm changes

If some regulatory impacts lead to increase in price of trucks (emission norm changes,
compulsory ABS), then in anticipation of the same there is heavy pre-buying before the
deadline. Like Europe saw a surge in truck sales on 4QCY13 (which was last quarter
before Euro-VI norms were introduced). Even in India there was surge in M&HCV sales
growth to 45% in 2QFY16 (last quarter before compulsory ABS) versus normal growth
trend of ~25%.
Going forward, in India on the emission norms front there will be rapid changes. While
normally there has been a five-year cycle of change in norms (nationwide BS II in 2005,
BS III in 2010, etc.), BS-IV has been delayed to 2017. To make up for the lost time, India
is now moving forward two stages in a period of just three years and shifting directly to BS
VI in 2020 itself. Both of these stages will lead to big increase in vehicle prices (common
rail required in BS IV and after-treatment systems like SCR required in BS-VI). Hence we
expect shift accordingly preponement of demand in FY17 followed by moderation in
FY18 and same cycle repeating with preponement of demand in FY20 followed by a weak
FY21.
Figure 51: Regulatory requirements can have impact on
Figure 52: In India two big events on emission norms
timing of demand as seen in Europe's case
front in next 4 years

Indian emission Standard
60%
Last quarter before

Euro 6 change
30%
Deadline
Bharat Stage I
2000
Bharat Stage II
2005
Bharat Stage III
2010
Bharat Stage IV
2017
Bharat Stage V
Skipped
Bharat Stage VI
2020
0%
4QCY15
3QCY15
2QCY15
1QCY15
4QCY14
3QCY14
2QCY14
1QCY14
4QCY13
3QCY13
2QCY13
1QCY13
4QCY12
3QCY12
2QCY12
1QCY12
-30%
Europe HCV sales growth (>16T)
Source: ACEA
Source: Company data, MORTH
20
21 March 2016
Prefer Bosch and Wabco over AL

Given that the economy is on a gradual recovery path and the fact that any impact from
railway capex won't be felt till FY19/FY20; we believe the CV cycle is likely to remain
strong for the next couple of years. A continued momentum on CVs is supportive of our
Tata Motors call where JLR still remains the core thesis. Ashok Leyland has executed
really well in the last few years doing both gaining share in almost every segment and
also improving cost structure since the new management team took over. However,
valuations are just too rich for our comfort. We continue to like the content stories in Bosch
(Link) and WABCO over AL in the space.
CV growth to remain robust for next couple of years;

implementation at railways key risk in medium term
M&HCV cycle will cross the previous peaks in FY17E
Given the near-term outlook of most freight generating sectors is stable to mildly positive
(Figure 37) and the fact that road freight growth has broadly tracked the freight tonnage
addition, we expect M&HCV demand to remain robust in FY17 with further support coming
from pre-buying before BS-IV implementation. Whilst FY18 volumes could be slightly
weaker given the impact of pre-buy in FY17; we dont expect the cycle to turn negative in
FY18, especially if the anticipated economic recovery comes through in FY17. The key
risk to the CV industry in FY18 could be GST implementation in which case the industry
might show a double-digit decline in FY18. If the recent aggressiveness in terms of track
expansion at Railways were to materialise by FY19, we could start seeing some share
gains from FY19. FY20 onwards railways is most likely to start regaining some of the lost
market share once DFC capacity comes on stream.
Figure 53: Historical cycles in M&HCV trucks
Period
Length of cycle
CAGR cycle (Volume terms)
FY81-FY83
23%
FY83-FY85
-5%
FY85-FY86
5%
FY86-FY87
-10%
FY87-FY91
14%
FY91-FY93
-17%
FY93-FY97
29%
FY97-FY99
-31%
FY99-FY00
41%
FY00-FY01
-29%
FY01-FY07
27%
FY07-FY09
-22%
FY09-FY12
26%
FY12-14
-14%
FY14-18E
21%
21
21 March 2016
Figure 54: M&HCV volumes will cross previous peak in FY17E; we expect the cycle to go
higher if the economy picks up pace
350
'000 units
M&HCV trucks sales
280
210
140
70
0
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017E
Within our coverage there are three OEM's exposed to M&HCV space Ashok Leyland,
Tata Motors and Eicher Motors which combined enjoy ~95% market share. Amongst these,
CV cycle is by far the most relevant for Ashok Leyland (given that Tata Motors is largely
JLR play and Eicher is Royal Enfield play).
Other than these there are auto ancillaries also but very few of them are pure CV OEM
plays having varied exposure to replacement, exports or other vehicle segments (cars,
tractors etc) also. The largest exposure to domestic M&HCV OEM space is for Wabco.
Figure 55: Indian auto stocks exposed to M&HCV space
% revenues from domestic M&HCV's OEM
% of profits
Ashok Leyland
~75%
~75%
Eicher (Attributable)
~25%
~10%
Tata Motors
~10%
~10%
Bharat Forge (Standalone)
~25%
~25%
Bosch
~25%
~30%
Wabco
~50%
~60%
Apollo Tyres
~12%
~10%
Ashok Leyland good execution but too pricey

On the market share front, AL has executed really well gaining ~900 bp market-share from
FY12 lows and ~700 bp in the last two years. The company has traditionally been stronger
in Southern India followed by West. However, in the last few years, it has had share gains
across regions - further consolidating on its leadership position in South and building up
presence in its weaker regions of North and East (its market-share has now crossed 20%
in each region).
22
21 March 2016
Figure 56: AL has had impressive share gains..
Figure 57: ..which have been spread across regions

60%
35%
AL's market-share
50%
40%
30%
30%
20%
25%
10%
0%
20%
2002
2004
2006
2008
2010
2012
2014
North
2016
East
FY12
Ashok Leyland market-share in M&HCV's
South
West
FY16
Similarly in terms of vehicle segments AL has had share gains across segments.
Maximum gains have been in ICV (7.5-12T) segment where the company was traditionally
weaker (Eicher and Tata used to dominate with combined 80%+ share), but with the
launch of new range of vehicles (Boss in end 2013) it has now reached ~15% share. The
company anyways had much higher share in buses and heavy trucks (faster growth in this
segment also contributed to overall share gains). AL has also seeded its own captive
financing arm Hinduja Leyland finance. In the past five years, AL's investments in the
entity has grown from negligible to Rs~8 bn.
Another reason for the market-share gain has been the higher production from Uttaranchal
plant. Many auto companies had set up plants in Uttarakhand to avail tax sops (ten year
excise duty exemption, complete income tax exemption for five years, and 30% income
tax exemption for another five). For Ashok Leyland: >40% of production this year has been
from the Uttaranchal plant. As per our dealer checks, this allows the company to give
higher discounts than peers. These benefits are still there for some time as they expire in
FY20 only. However, in medium term post that, there will either be some hit to margins or
market-share for the company, as these benefits expire.
Figure 58: AL has gained share across vehicle classes
Figure 59: while Tata has lost share everywhere

75%
50%
Tata market-share
AL's market-share
40%
60%
30%
45%
20%
30%
10%
15%
0%
0%
7.5-12T
12T-25T
FY12
>25T
FY16
Buses
7.5-12T
12T-25T
FY12
>25T
Buses
FY16
23
21 March 2016
On the other side, Tata Motors has had share loss across segments. Tata Motors and
Ashok Leyland have always enjoyed ~80% share combined in M&HCV's, hence share
gains for AL have largely been at the cost of Tata. Eicher Motors, the third-largest player,
has maintained its market-share but Asia Motor Works (AMW), which was the fourthlargest player in FY12 with ~3% market share, has completely collapsed now. AMW has
been traditionally stronger in the mining segment, hence the big decline in construction
trucks (tipper etc) volumes impacted the company. AL has managed to capture this entire
share lost by AMW.
Figure 60: While AL has had bulk of gains from Tata...
Figure 61: ...it has also captured the entire ~3% share of
AMW which has collapsed due to financial troubles
1,200
60%
1,000
48%
800
36%
600
24%
400
12%
200
0%
AL
Eicher
Tata Motors
FY12 share
M&M
AMW
Others
Apr-11 Nov-11 Jun-12 Jan-13 Aug-13 Mar-14 Oct-14 May-15 Dec-15
FY16 share
Asia Motor Works M&HCV monthly volumes
Given our positive stance on CV cycle for next cycle, AL is theoretically the best play given
its highest exposure to India M&HCV among all stocks. However, valuations are high for
the stock with AL now trading at ~11.5x one year forward EV/EBITDA (consensus)
compared to historic average of ~9x. Even on 24 month forward basis (by when it would
be four years of up-cycle and hence closer to peak), it is trading at 9.5x EV/EBITDA
versus historic average of ~7.5x
Figure 62: AL trading well above historic valuations...
Figure 63: even on 2 year forward basis by when we will

have four years of upcycle valuations are rich
20
15
15
10
10
5
5
0
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Ashok Leyland EV to 12M fwd EBITDA
Source: I/B/E/S Datastream
0
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
Ashok Leyland EV to 24M fwd EBITDA
Source: I/B/E/S Datastream
24
21 March 2016
The other thing to note is that in the past, stock returns have been highest only in the initial
two years of the cycle. After that, even though the CV cycle may continue for more years,
returns are gradual at best. Hence, we maintain our NEUTRAL rating on Ashok Leyland.
Figure 64: Stock returns have typically been highest in first two years of upcycle
Cycle1
Cycle 2
Cycle 3
800%
Current (after 2013)
Stock returns (indexed)
600%
After 2008
400%
200%
After 2001
0%
0
100
200
300
400
500
600
700
800
900
1000 1100 1200 1300 1400
Number of days post cycle start

Source: the BLOOMBERG PROFESSIONAL service, SIAM, Credit Suisse estimates
Along with Ashok Leyland gaining market share (as highlighted above), one other reason
for higher stock returns in this cycle, is due to the fact that there has been a pick-up in
free-cash flow (FCF). From FY11 to FY14, Ashok Leyland had made significant
investments in its JVs/ subsidiaries (Nissan LCV, financing arm, foundry, etc.). The
company also incurred significant capital expenditure on capacity expansion and product
development. In the last two years there has been a clear moderation in the same,
resulting in a significant improvement in companys cash flows. From a high of ~Rs16 bn
in FY13, total spends on capex + investments has moderated to only ~Rs4 bn in FY16
(which has also contributed to large reduction in debt).
Figure 65: Pick-up in FCF generation for Ashok Leyland given improvement in operating
performance along with scale-down in investments and capex
10,000
20,000
Rs Mn
8,000
15,000
6,000
10,000
4,000
5,000
2,000
-5,000
-2,000
-10,000
Negative because of disposals
-4,000
FY10A
FY11A
Capex
FY12A
FY13A
FY14A
FY15A
Incremental investments in subs
FY16E
-15,000
FY17E
FCF (RHS)
25
21 March 2016
Tata Motors CV recovery will support the JLR story

For Tata Motors, LCV (light commercial vehicle) space is also important. LCVs had very
strong growth from FY12-14 due to aggressive financing especially by some NBFCs. This
led to a spike in NPAs in certain segments, following this financiers pulled out greatly from
the LCV space leading to big decline in demand here too. LCVs generally follow M&HCVs
with a lag, and in the last few months growth has turned positive here too. In the longer
run, LCVs are more of a secular growth track given the expanding hub and spoke model
increasing usage on short haul routes. Also penetration is lower in India currently
LCV:MHCV ratio in India is ~1.25:1, this ratio is at ~2:1 in China and ~4:1 in Europe
Figure 66: LCV's have started to recover, following
Figure 67: Over longer term, LCVs should grow faster
M&HCV's with a lag
given the lower penetration
50%
40%
4
30%
20%
10%
0%
-10%
-20%
-30%
0
-40%
2003
2005
2007
LCV's growth
2009
2011
2013
2015
India
China
Europe
LCV to M&HCV ratio
M&HCV growth
Source: SIAM
Source: SIAM, ACEA
Tata Motors is considered more of a JLR play and our bullish thesis is primarily based on
recovery in both JLR volumes and margins (See Link to report). The standalone (domestic
India business) contributes to just ~17% of consolidated revenues (FY17E) and ~8% of
consolidated EBITDA. However we note while the cars business contributes to ~25% of
volumes for the company, it is actually loss making. Hence the entire Indian profit is
actually attributable to CVs only.
Figure 68: Given that cars is loss-making, entire India profits attributable to CVs only
120%
Contribution for Tata Motors standalone

100%
80%
60%
40%
20%
0%
Volumes
Revenues
M&HCV
Profits
LCV
26
21 March 2016
Moreover given the higher multiple which we ascribe to Indian business in SOTP valuation
for Tata Motors (8x EV/EBITDA for India versus 3.5x EV/EBITDA for JLR), its contribution
to stock price is higher than profit contribution. While ~8% of consolidated profit
contribution, India CV contribution (given no value for the car business) to target price is
~20%. Contribution to current stock price is even higher at ~30%.
Figure 69: The India business (entirely CV's) contributes to ~20% of our SOTP valuation
for JLR and ~30% to current stock price
Domestic Business
Basis of valuation
Multiple
Value per share (Rs)
EV/ Dec-17 EBIDTA (x)
8.0
103
EV/ Dec-17 EBIDTA (x)
3.50
341
PER (Dec 17E, x)
8.0
37
Net debt
-35
JLR
China JV
Subsidiaries
25
Target Price
470
Prefer Bosch and Wabco to play the CV cycle

To play the Indian CV cycle, we prefer content stories - Bosch and Wabco. As highlighted
in our recent note (Link), Bosch is one of the main beneficiaries of the recent change in
government's stancegreater commitment to tackle the problem of pollution in the
country, with a focus on automobiles sector (advancement of BS-VI norms, etc.).
Normally, with each change in the stage of an emission norm (which happens every five
years or so), there is an increase in content, leading to Bosch's outperformance in the
industry. With India now leapfrogging two norms ahead in a period of just three years,
there would be accelerated increase in content (and outperformance) post FY20 for the
company. Particular to CVs, BS-IV will entail shift from mechanical injection systems to
common-rail while BS-VI will entail setting up of after-treatment systems such as SCR
(Selective Catalytic reduction) both of which will result in large content increase.
Figure 70: Bosch to see big content increase in CV's with
Figure 71: Company's revenue growth to accelerate to
both BS-IV and BS-VI
~20% compared to historic ~15% levels
36,000
Market-share loss
but content increase
with shift to commonrail in BS4
60%
BS6 adoption
of SCR
40%
24,000
20%
12,000
0%
0
FY16E
FY17E
FY18E
FY19E
FY20E
M&HCV content increase (Rs/Vehicle)
FY21E
FY22E
Non-Autos
Exports (ex
S&G)
Replacement India OEM (ex

S&G)
Current share of revenue
Overall
Growth FY16-22E
Wabco globally has a proven track record of outperformance over the market, particularly
in emerging economies there is strong opportunity in increasing content per vehicle (See
our initiation report and Global Investor Day Takeaways). This played out in 3QFY16 with
the compulsory ABS (Anti-Lock braking system) implementation from Oct-15 resulting in
large increase in content per vehicle. The companys top line grew 44% YoY with ~70%
27
21 March 2016
growth in domestic OEM revenues (compared to ~20% growth in M&HCV production

during the quarter).
Figure 72: Sharp increase in Wabco's outperformance
Figure 73: For Wabco - India has among the lowest
over market in 3Q16with compulsory ABS implementation
content per vehicle globally; catch-up should happen in

the next few years
60%
Regional
Western Europe
45%
30%
15%
Average heavy
Content per
truck price (US$) vehicle (US$)
Content as a %
of vehicle price
130k
>3000
2.3%
South America
65k
<1500
2.3%
Japan & Korea
80k
<1000
1.3%
North America
80k
<1000
1.3%
Eastern Europe
70k
<500
0.7%
China
30k
~300
1.0%
India
30k
~300
1.0%
0%
-15%
1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16
Wabco's outperformance in India
28
21 March 2016
Ashok Leyland Ltd ASOK.BO / AL IN

Price (18 Mar 16): Rs97.30, Rating:: NEUTRAL, Target Price: Rs96.00, Analyst: Jatin Chawla
Target price scenario
Scenario
TP
%Up/Dwn Assumptions
Acceleration in reforms leads to continued robust CV
Upside
120.00
23.33
growth
Central Case
96.00
(1.34)
Investment cycle remains sluggish leading to
Downside
65.00
(33.20)
slowdown in CV growth
Income statement (Rs mn)
3/15A
3/16E
3/17E
3/18E
Sales revenue
135,622
186,832
227,945
252,149
Cost of goods sold
99,652
131,436
160,359
177,387
SG&A
14,905
18,203
21,040
23,312
Other operating exp./(inc.)
10,799
15,275
18,141
19,539
EBITDA
10,266
21,918
28,405
31,911
Depreciation & amortisation
4,163
4,381
4,542
4,902
EBIT
6,103
17,537
23,863
27,009
Net interest expense/(inc.)
3,935
2,750
1,950
1,750
Non-operating inc./(exp.)
1,245
1,182
1,301
1,431
Associates/JV
Recurring PBT
3,413
15,970
23,214
26,690
Exceptionals/extraordinaries
1,009
Taxes
1,074
4,871
7,196
8,274
Profit after tax
3,348
11,099
16,018
18,416
Other after tax income
Minority interests
Preferred dividends
Reported net profit

3,348
11,099
16,018
18,416
Analyst adjustments
Net profit (Credit Suisse)

3,348
11,099
16,018
18,416
Cash flow (Rs mn)
3/15A
3/16E
3/17E
3/18E
EBIT
6,103
17,537
23,863
27,009
Net interest
Tax paid
Working capital
Other cash & non-cash items

4,163
4,381
4,542
4,902
Operating cash flow
10,266
21,918
28,405
31,911
Capex
(2,500)
(3,000)
(4,000)
Free cash flow to the firm
10,266
19,418
25,405
27,911
Disposals of fixed assets
Acquisitions
Divestments
Associate investments
Other investment/(outflows)
Investing cash flow
(2,500)
(3,000)
(4,000)
Equity raised
Dividends paid
(1,541)
(3,245)
(3,894)
(4,868)
Net borrowings
Other financing cash flow
Financing cash flow

(1,541)
(3,245)
(3,894)
(4,868)
Total cash flow
8,725
16,173
21,510
23,043
Adjustments
Net change in cash

8,725
16,173
21,510
23,043
Balance sheet (Rs mn)
3/15A
3/16E
3/17E
3/18E
Cash & cash equivalents
7,513
10,340
13,835
24,758
Current receivables
12,577
17,915
22,482
24,869
Inventories
13,985
19,963
24,980
27,633
Other current assets
18,795
19,570
20,385
21,240
Current assets
52,870
67,788
81,682
98,501
Property, plant & equip.
53,757
51,876
50,334
49,432
Investments
26,488
27,488
29,488
31,988
Intangibles
Other non-current assets
Total assets
133,115
147,153
161,505
179,921
Accounts payable
28,283
38,963
47,537
52,584
Short-term debt
Current provisions
3,347
3,681
4,049
4,454
Other current liabilities
11,698
12,868
14,155
15,570
Current liabilities
43,328
55,512
65,741
72,609
Long-term debt
33,497
27,497
19,497
17,497
Non-current provisions
Other non-current liab.

5,103
5,103
5,103
5,103
Total liabilities
81,928
88,112
90,341
95,209
Shareholders' equity
51,187
59,041
71,164
84,712
Minority interests
Total liabilities & equity

133,115
147,153
161,505
179,921
Key earnings drivers

Total Volumes sold
Margins
3/15A
3/16E
3/17E
77,660 109,045 133,235
7.6
11.7
12.5
Per share data

Shares (wtd avg.) (mn)
EPS (Credit Suisse) (Rs)
DPS (Rs)
BVPS (Rs)
Operating CFPS (Rs)
Key ratios and valuation
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
Valuation metrics (x)
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Financial leverage (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)
3/18E
145,306
12.7
3/15A
2,846
1.18
0.54
18.0
3.6
3/15A
3/16E
2,846
3.90
1.14
20.7
7.7
3/16E
3/17E
2,846
5.63
1.37
25.0
10.0
3/17E
3/18E
2,846
6.47
1.71
29.8
11.2
3/18E
36.4
390
1,038
969
37.8
187
232
232
22.0
36
44
44
10.6
13
15
15
7.6
4.5
2.5
2.47
11.7
9.4
8.5
5.94
12.5
10.5
10.2
7.03
12.7
10.7
10.6
7.30
82.7
5.41
0.56
27.0
2.23
29.5
49.6
24.9
4.69
1.17
12.6
1.57
13.4
16.8
17.3
3.89
1.41
9.7
1.24
9.9
11.8
15.0
3.27
1.76
8.7
1.07
8.4
10.0
7.0
5.0
1.02
0.56
0.76
2.60
20.1
15.9
1.27
0.91
0.70
2.49
24.6
21.5
1.41
0.97
0.69
2.27
23.6
24.2
1.40
0.99
0.69
2.12
50.8
2.53
1.6
29.1
0.78
6.4
8.0
0.20
12.2
(8.6)
(0.23)
15.4
Source: Company data, Thomson Reuters, Credit Suisse estimates.

12MF P/E multiple
80
70
60
50
40
30
20
10
0
2011
2012
2013
2014
2015
2016
2015
2016
12MF P/B multiple

6
5
4
3
2
1
0
2011
2012
2013
2014
Source: IBES
29
21 March 2016
Tata Motors Ltd. TAMO.BO / TTMT IN

Price (18 Mar 16): Rs365.90, Rating:: OUTPERFORM, Target Price: Rs470.00, Analyst: Jatin Chawla
Scenario
TP
Upside
600.00
Central Case
470.00
Downside
300.00

Sales revenue
Cost of goods sold
SG&A
EBITDA
EBIT
Associates/JV
Recurring PBT
Taxes
Profit after tax
Minority interests
Preferred dividends
Reported net profit
Analyst adjustments
Cash flow (Rs mn)
EBIT
Net interest
Tax paid
Working capital
Operating cash flow
Capex
Acquisitions
Divestments
Investing cash flow
Equity raised
Dividends paid
Net borrowings
Financing cash flow
Total cash flow
Adjustments
Net change in cash
Current receivables
Inventories
Current assets
Investments
Intangibles
Total assets
Accounts payable
Short-term debt
Current provisions
Current liabilities
Long-term debt
Total liabilities
Minority interests
%Up/Dwn Assumptions
XE big success, Domestic business too
63.98
revives fast
28.45
Global macro environment turns adverse;
(18.01)
slowdown in China luxury spend
3/15A
3/16E
3/17E
3/18E
2,627,963
2,765,769
3,004,004
3,205,566
2,044,262
2,211,562
2,379,934
2,526,237
125,865
123,970
136,922
146,727
36,699
41,976
43,318
45,607
421,138
388,262
443,830
486,995
133,886
171,370
204,446
242,949
287,252
216,892
239,385
244,045
49,676
43,979
27,562
17,089
(18,703)
(22,955)
(24,505)
(25,648)
218,872
149,958
187,318
201,308
(1,847)
76,429
28,492
41,210
44,288
140,596
121,466
146,108
157,020
134
3,887
12,950
16,730
867.8
867.8
867.8
867.8
139,863
124,485
158,190
172,883
139,863
124,485
158,190
172,883
3/15A
3/16E
3/17E
3/18E
287,252
216,892
239,385
244,045
(48,615)
(44,381)
(31,066)
(23,042)
(82,582)
(28,492)
(41,210)
(44,288)
122,503
(23,934)
16,730
14,619
140,293
184,276
227,403
270,991
418,851
304,361
411,240
462,326
(327,338)
(392,000)
(385,000)
(385,000)
91,513
115,324
224,640
274,726
(46,501)
(373,839)
(392,000)
(385,000)
(385,000)
(187,480)
75,000
(3,956)
(7,913)
(11,869)
195,259
(49,132)
868
(49,132)
7,779
21,912
(7,045)
(61,002)
52,791
(65,727)
19,195
16,324
52,791
(65,727)
19,195
16,324
3/15A
3/16E
3/17E
3/18E
321,158
222,991
210,311
194,761
125,792
189,947
206,831
220,973
292,723
306,145
329,666
350,063
295,012
320,706
348,971
380,061
1,034,685
1,039,789
1,095,779
1,145,858
576,353
680,244
765,265
832,155
153,367
153,367
153,367
153,367
594,843
711,581
807,115
882,276
2,359,248
2,584,982
2,821,526
3,013,656
574,073
612,951
653,844
685,136
153,837
153,837
153,837
153,837
211,703
232,873
256,160
281,776
192,897
212,186
233,405
256,746
1,132,509
1,211,847
1,297,245
1,377,494
582,267
532,267
532,267
482,267
77,519
77,519
77,519
77,519
1,792,295
1,821,633
1,907,032
1,937,280
562,619
758,148
908,425
1,069,439
4,333
5,201
6,069
6,937
2,359,248
2,584,982
2,821,526
3,013,656

Dom CV volumes
Dom PV volumes
Dom gross margins
JLR volumes
JLR gross margins
3/15A
3/16E
3/17E
364,539 382,399 470,895
137,616 134,486 147,656
(1.35)
6.12
7.46
470,523 538,847 638,906
18.9
14.6
15.9
Per share data

DPS (Rs)
BVPS (Rs)
Operating CFPS (Rs)
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)
3/18E
529,376
162,144
7.79
698,966
16.5
3/15A
3,219
43.5
175
130
3/15A
3/16E
3,396
36.7
1.16
223
90
3/16E
3/17E
3,396
46.6
2.33
267
121
3/17E
3/18E
3,396
50.9
3.50
315
136
3/18E
12.9
9.1
(0.0)
(0.0)
5.2
(24.5)
(11.0)
(15.6)
8.6
10.4
27.1
27.1
6.7
1.9
9.3
9.3
16.0
10.9
8.33
5.32
14.0
7.8
5.42
4.50
14.8
8.0
6.24
5.27
15.2
7.6
6.28
5.39
8.4
2.09
2.81
0.56
3.49
5.12
10.0
1.64
0.32
4.08
0.55
3.91
7.01
7.9
1.37
0.64
3.02
0.51
3.45
6.40
7.2
1.16
0.96
2.69
0.47
3.08
6.14
23.0
19.1
1.11
0.76
0.65
4.16
18.9
15.9
1.07
0.69
0.81
3.39
19.0
14.3
1.06
0.78
0.78
3.09
17.5
13.1
1.06
0.82
0.78
2.80
73.2
0.99
5.8
60.7
1.19
4.9
52.0
1.07
8.7
41.0
0.91
14.3

12MF P/E multiple
10
9
8
7
6
5
4
3
2
1
0
2011
2012
2013
2014
2015
2016
2015
2016
12MF P/B multiple

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2011
2012
2013
2014
Source: IBES
30
21 March 2016
Bosch Ltd. BOSH.BO / BOS IN

Price (18 Mar 16): Rs18,782, Rating:: OUTPERFORM, Target Price: Rs22,500, Analyst: Akshay Saxena
Scenario
Upside
TP
27,000.00
Central Case
22,500.00
Downside
13,500.00
Sales revenue
Cost of goods sold
SG&A
EBITDA
EBIT
Associates/JV
Recurring PBT
Taxes
Profit after tax
Minority interests
Preferred dividends
Reported net profit
Analyst adjustments
Cash flow (Rs mn)
EBIT
Net interest
Tax paid
Working capital
Operating cash flow
Capex
Acquisitions
Divestments
Investing cash flow
Equity raised
Dividends paid
Net borrowings
Financing cash flow
Total cash flow
Adjustments
Net change in cash
Current receivables
Inventories
Current assets
Investments
Intangibles
Total assets
Accounts payable
Short-term debt
Current provisions
Current liabilities
Long-term debt
Total liabilities
Minority interests
%Up/Dwn Assumptions
Faster auto growth, higher delta from
43.75
emission norms
19.79
(28.12) Slowdown in key auto segments like CV's
3/15A
3/16E
3/17E
3/18E
97,972
106,647
114,000
138,030
79,125
85,041
88,431
106,473
3,186
3,441
3,854
4,317
15,661
18,165
21,714
27,240
4,603
4,005
4,606
5,158
11,058
14,160
17,109
22,082
155.8
60.0
4,415
4,150
5,230
6,015
15,317
18,250
22,339
28,097
(280.0)
4,923
5,895
7,149
8,991
10,114
12,355
15,191
19,106
280.0
10,394
12,355
15,191
19,106
10,394
12,355
15,191
19,106
3/15A
3/16E
3/17E
3/18E
11,058
14,160
17,109
22,082
4,415
4,150
5,230
6,015
(4,923)
(5,895)
(7,149)
(8,991)
1,350
(1,440)
(644)
(2,271)
4,323
4,005
4,606
5,158
16,223
14,980
19,152
21,993
(3,090)
(6,240)
(7,000)
(7,500)
13,133
8,740
12,152
14,493
(3,090)
(6,240)
(7,000)
(7,500)
2,442
(3,212)
(3,779)
(4,535)
(5,290)
(617.0)
(105.0)
(155.8)
(60.0)
(1,543)
(3,944)
(4,535)
(5,290)
11,590
4,797
7,618
9,203
11,590
4,797
7,618
9,203
3/15A
3/16E
3/17E
3/18E
18,960
23,757
31,374
40,577
11,877
12,929
13,820
16,733
12,762
13,892
14,850
17,980
15,205
15,885
15,885
18,028
58,804
66,463
75,929
93,318
9,676
12,671
15,566
17,908
28,896
28,896
28,896
28,896
6,932
6,172
5,672
5,672
104,308
114,202
126,063
145,794
16,061
17,483
18,688
22,628
13,172
13,172
13,172
15,148
29,233
30,655
31,860
37,776
1,605
1,500
1,500
1,500
30,838
32,155
33,360
39,276
73,470
82,047
92,703
106,518
104,308
114,202
126,063
145,794

Revenue growth (%)
Margins (%)
3/15A
11.5
16.0
3/16E
9.0
17.0
3/17E
6.5
19.0
3/18E
21.1
19.7
Per share data

DPS (Rs)
BVPS (Rs)
Operating CFPS (Rs)
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)
3/15A
31.4
331
85
2,340
517
3/15A
3/16E
31.4
393
100
2,613
477
3/16E
3/17E
31.4
484
120
2,952
610
3/17E
3/18E
31.4
608
140
3,392
700
3/18E
11.1
21.9
17.5
17.5
8.9
28.1
18.9
18.9
6.9
20.8
22.9
22.9
21.1
29.1
25.8
25.8
16.0
11.3
15.6
10.6
17.0
13.3
17.1
11.6
19.0
15.0
19.6
13.3
19.7
16.0
20.4
13.8
56.7
8.03
0.45
36.4
5.84
36.5
51.8
47.7
7.19
0.53
39.4
5.32
31.2
40.1
38.8
6.36
0.64
30.8
4.91
25.8
32.7
30.9
5.54
0.75
26.8
3.99
20.2
24.9
15.2
14.0
0.94
1.39
0.67
1.42
15.9
16.5
0.93
1.29
0.68
1.39
17.4
19.0
0.90
1.31
0.68
1.36
19.2
23.1
0.95
1.27
0.68
1.37
(23.6)
(1.11)
71
(27.1)
(1.23)
236
(32.2)
(1.38)
(36.7)
(1.43)

12MF P/E multiple
70
60
50
40
30
20
10
0
2011
2012
2013
2014
2015
2016
2015
2016
12MF P/B multiple

12
10
8
6
4
2
0
2011
2012
2013
2014
Source: IBES
31
21 March 2016
Wabco India Ltd. WABC.BO / WIL IN

Price (18 Mar 16): Rs5,434.65, Rating:: OUTPERFORM, Target Price: Rs6,400.00, Analyst: Jatin Chawla
Scenario
Upside
TP
7,680.00
Central Case
6,400.00
Downside
4,800.00
Sales revenue
Cost of goods sold
SG&A
EBITDA
EBIT
Associates/JV
Recurring PBT
Taxes
Profit after tax
Minority interests
Preferred dividends
Reported net profit
Analyst adjustments
Cash flow (Rs mn)
EBIT
Net interest
Tax paid
Working capital
Operating cash flow
Capex
Acquisitions
Divestments
Investing cash flow
Equity raised
Dividends paid
Net borrowings
Financing cash flow
Total cash flow
Adjustments
Net change in cash
Current receivables
Inventories
Current assets
Investments
Intangibles
Total assets
Accounts payable
Short-term debt
Current provisions
Current liabilities
Long-term debt
Total liabilities
Minority interests
%Up/Dwn Assumptions
Faster recovery in CV space and more
41.32
new products launched by WABCO
17.76
(11.68) CV recovery delays
3/15A
3/16E
3/17E
3/18E
13,480
18,221
24,489
29,911
7,929
10,796
14,326
17,498
3,517
4,272
5,494
6,563
2,034
3,153
4,669
5,850
466.6
583.3
670.8
771.4
1,567
2,570
3,998
5,079
3.6
203.0
304.5
365.4
438.5
1,766
2,874
4,363
5,517
560
776
1,178
1,490
1,207
2,098
3,185
4,028
1,207
2,098
3,185
4,028
1,207
2,098
3,185
4,028
3/15A
3/16E
3/17E
3/18E
1,567
2,570
3,998
5,079
199.4
304.5
365.4
438.5
(557)
(776)
(1,178)
(1,490)
(167)
(1,167)
(1,250)
(1,128)
466.6
583.3
670.8
771.4
1,509
1,514
2,606
3,671
(715)
(1,000)
(1,200)
(1,200)
794
514
1,406
2,471
(715)
(1,000)
(1,200)
(1,200)
(13.4)
(114.7)
(199.7)
(266.3)
(266.3)
(128.0)
(199.7)
(266.3)
(266.3)
666
314
1,140
2,205
666
314
1,140
2,205
3/15A
3/16E
3/17E
3/18E
2,601
2,915
4,054
6,259
2,992
4,044
5,435
6,638
1,180
1,595
2,143
2,618
927
1,093
1,311
1,573
7,699
9,646
12,944
17,088
3,237
3,654
4,183
4,612
22.0
22.0
22.0
22.0
176.3
176.3
176.3
176.3
11,135
13,498
17,325
21,898
2,012
2,412
3,241
3,959
327.4
392.9
471.5
565.8
2,340
2,805
3,713
4,525
0.30
164.5
164.5
164.5
164.5
2,504
2,969
3,877
4,689
8,630
10,529
13,448
17,209
11,135
13,498
17,325
21,898

Revenue growth (%)
Margins (%)
3/15A
21.4
15.1
3/16E
35.2
17.3
3/17E
34.4
19.1
3/18E
22.1
19.6
Per share data

DPS (Rs)
BVPS (Rs)
Operating CFPS (Rs)
Growth(%)
Sales revenue
EBIT
Net profit
EPS
Margins (%)
EBITDA
EBIT
Pre-tax profit
Net profit
P/E
P/B
Dividend yield (%)
P/CF
EV/sales
EV/EBITDA
EV/EBIT
ROE analysis (%)
ROE
ROIC
Asset turnover (x)
Interest burden (x)
Tax burden (x)
Credit ratios
Net debt/equity (%)
Net debt/EBITDA (x)
Interest cover (x)
3/15A
19.0
64
5.0
455
80
3/15A
3/16E
19.0
111
9.0
555
80
3/16E
3/17E
19.0
168
12.0
709
137
3/17E
3/18E
19.0
212
12.0
907
194
3/18E
21.4
16.9
2.7
2.7
35.2
64.0
73.9
73.9
34.4
55.6
51.8
51.8
22.1
27.0
26.4
26.4
15.1
11.6
13.1
9.0
17.3
14.1
15.8
11.5
19.1
16.3
17.8
13.0
19.6
17.0
18.4
13.5
85.4
11.9
0.09
68.3
7.45
49.4
64.1
49.1
9.8
0.17
68.1
5.50
31.8
39.0
32.4
7.7
0.22
39.6
4.04
21.2
24.8
25.6
6.0
0.22
28.1
3.24
16.6
19.1
14.9
18.5
1.21
1.13
0.68
1.29
21.9
27.5
1.35
1.12
0.73
1.28
26.6
34.3
1.41
1.09
0.73
1.29
26.3
36.4
1.37
1.09
0.73
1.27
(30.1)
(1.28)
434
(27.7)
(0.92)
(30.2)
(0.87)
(36.4)
(1.07)

12MF P/E multiple
60
50
40
30
20
10
0
2011
2012
2013
2014
2015
2016
2015
2016
12MF P/B multiple

14
12
10
8
6
4
2
0
2011
2012
2013
2014
Source: IBES
32
21 March 2016
Companies Mentioned (Price as of 18-Mar-2016)

American Axle & Manufacturing Holdings Inc. (AXL.N, $15.48)
Apollo Tyres (APLO.BO, Rs177.45)
Ashok Leyland Ltd (ASOK.BO, Rs97.3, NEUTRAL, TP Rs96.0)
Astra International (ASII.JK, Rp7,450)
Autoliv (ALV.N, $112.82)
BAIC Motor Corporation Limited (1958.HK, HK$6.25)
BMW (BMWG.DE, 81.58)
Bajaj Auto Limited (BAJA.BO, Rs2301.85)
Bharat Forge Limited (BFRG.BO, Rs847.15)
BorgWarner, Inc. (BWA.N, $37.97)
Bosch Ltd. (BOSH.BO, Rs18782.15, OUTPERFORM, TP Rs22500.0)
Brilliance China Automotive Holdings Limited (1114.HK, HK$7.28)
Continental (CONG.DE, 195.65)
DELPHI Automotive PLC (DLPH.N, $72.64)
Dana Holding (DAN.N, $14.03)
Denso (6902.T, 4,312)
Dongfeng Motor Group Company Limited (0489.HK, HK$9.66)
Eicher Motors (EICH.BO, Rs18403.1)
Exide Industries (EXID.BO, Rs136.05)
Faurecia (EPED.PA, 33.5)
Ford Motor Company (F.N, $13.64)
Geely Automobile Holdings Ltd (0175.HK, HK$3.42)
General Motors Corp. (GM.N, $31.96)
Great Wall Motor (2333.HK, HK$6.86)
Guangzhou Automobile Group (2238.HK, HK$7.58)
Hero Motocorp Ltd (HROM.BO, Rs2832.9)
Honda Motor (7267.T, 3,058)
Hyundai Motor Company (005380.KS, W150,500)
Johnson Controls Inc (JCI.N, $38.86)
Kia Motors (000270.KS, W47,600)
Lear Corp (LEA.N, $111.91)
Magna International (MGA.N, $42.78)
Mahindra & Mahindra (MAHM.BO, Rs1222.2)
Maruti Suzuki India Ltd (MRTI.BO, Rs3629.55)
Motherson Sumi Systems Limited (MOSS.BO, Rs249.9)
Nissan Motor (7201.T, 1,061)
PSA Peugeot Citroen (PEUP.PA, 15.43)
Paccar Inc (PCAR.OQ, $55.18)
Plastic Omnium (PLOF.PA, 29.66)
Renault (RENA.PA, 85.75)
SAIC Motor Corp Ltd (600104.SS, Rmb19.83)
Suzuki Motor (7269.T, 3,018)
TRW Automotive Holdings Corp. (TRW.N, $105.46)
Tata Motors Ltd. (TAMO.BO, Rs365.9, OUTPERFORM[V], TP Rs470.0)
Toyota Motor (7203.T, 5,888)
Valeo (VLOF.PA, 134.3)
Volkswagen (VOWG_p.DE, 116.5)
Volvo (VOLVb.ST, Skr87.65)
Wabco India Ltd. (WABC.BO, Rs5434.65, OUTPERFORM, TP Rs6400.0)
Weichai Power Co. Ltd (000338.SZ, Rmb8.12)
Disclosure Appendix
Important Global Disclosures
Jatin Chawla and Akshay Saxena each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed
in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation
was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
33
21 March 2016
3-Year Price and Rating History for Ashok Leyland Ltd (ASOK.BO)
ASOK.BO
Date
03-Apr-13
13-May-13
17-Jul-13
07-Nov-13
19-May-14
26-May-14
28-Jul-14
11-Sep-14
04-Nov-14
02-Feb-15
13-May-15
13-Aug-15
05-Nov-15
12-Feb-16
Closing Price
(Rs)
22.30
22.10
16.10
16.80
29.10
31.90
32.75
41.90
46.50
66.10
69.60
88.45
86.80
83.20
Target Price
(Rs)
25.00
24.00
17.00
15.00
32.00
37.00
39.00
48.00
48.00
63.00
65.00
80.00
83.00
86.00
Rating
N
N
N EU T RA L
O U T PERFO RM
* Asterisk signifies initiation or assumption of coverage.
3-Year Price and Rating History for Bosch Ltd. (BOSH.BO)

BOSH.BO
Date
29-Apr-13
28-Jan-14
23-Nov-15
15-Mar-16
Closing Price
(Rs)
8994.55
9115.10
19008.85
18146.90
Target Price
(Rs)
10020.00
15300.00
22500.00
Rating
O
NR
U*
O
O U T PERFO RM
N O T RA T ED
U N D ERPERFO RM
3-Year Price and Rating History for Tata Motors Ltd. (TAMO.BO)
TAMO.BO
Date
03-Apr-13
10-Sep-13
11-Nov-13
09-Jan-14
10-Feb-14
22-Apr-14
19-May-14
29-May-14
11-Aug-14
23-Sep-14
17-Nov-14
26-Mar-15
04-May-15
18-May-15
27-May-15
03-Aug-15
12-Feb-16
Closing Price
(Rs)
254.87
345.50
373.16
364.25
360.15
424.51
439.65
419.31
442.66
512.32
539.33
520.58
506.70
520.25
471.65
388.15
298.65
Target Price
(Rs)
361.14
395.77
435.34
445.24
460.08
465.02
494.71
474.92
504.60
633.22
643.12
640.00
620.00
610.00
490.00
470.00
Rating
O
O
R
O
O U T PERFO RM
N EU T RA L
REST RICT ED
34
21 March 2016
3-Year Price and Rating History for Wabco India Ltd. (WABC.BO)
WABC.BO
Date
04-Nov-14
04-Mar-15
29-Jul-15
29-Jan-16
Closing Price
(Rs)
3584.10
5313.60
5406.85
5606.10
Target Price
(Rs)
4820.00
6200.00
6300.00
6400.00
Rating
O*
O U T PERFO RM
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's
total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts stock rating are defined as follows:

Outperform (O) : The stocks total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stocks total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are bas ed on a stocks total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stocks total
return relative to the analyst's coverage universe which consists of all companies covered by the analyst withi n the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings
are based on a stocks total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Can adian
ratings were based on (1) a stocks absolute total return potential to its current share price and (2) the relative attractiv eness of a stocks total return potential within
an analysts coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An
Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned
where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated ris ks. Prior to 18
May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July
2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts sector weightings are distinct from analysts stock ratings and are based on the analysts expectations for the fundamentals and/or
valuation of the sector* relative to the groups historic fundamentals and/or valuation:
Overweight : The analysts expectation for the sectors fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.
*An analysts coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution
Rating
Versus universe (%)
Of which banking clients (%)
Outperform/Buy*
57%
(39% banking clients)
Neutral/Hold*
31%
Underperform/Sell*
11%
Restricted
1%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
35
21 March 2016
Credit Suisses policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
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be used, by any taxpayer for the purposes of avoiding any penalties.
Target Price and Rating
Valuation Methodology and Risks: (12 months) for Ashok Leyland Ltd (ASOK.BO)
Method: Our target price of Rs96 for Ashok Leyland is based on P/E (price-to-earnings); we value the stock at 14x Mar-18E earnings (10%
premium to historic average given the upcycle) and we give a Rs5/share value for the unlisted subs. We have Neutral rating on Ashok
Leyland as even with strong earnings momentum, we believe the current stock price already reflects that.
Risk:
Key downside risks to our target price of Rs96 and Neutral rating for Ashok Leyland is a slower than expected recovery in the economy
leading to lower CV growth going forward. Upside risk is company continuing to outperform the industry.

Valuation Methodology and Risks: (12 months) for Bosch Ltd. (BOSH.BO)
Method: Our target price of Rs22,500 for Bosch Ltd is based on DCF. We use a three stage DCF valuationinitial high growth phase of ~20% in
the first seven years driven by content increase with emission norm changes, 10% growth for the next seven years, and a terminal growth
rate of 5%. We use a WACC of 11.5%. We have an OUTPERFORM rating as we believe Bosch is one of the main beneficiaries of the
recent change in government's stancegreater commitment to tackle the problem of pollution in the country with a focus on automobiles
sector (advancement of BS-VI norms, inclusion of vehicle classes such as 2Ws etc.).
Risk:
Key risks to our target price of Rs22,500 and OUTPERFORM rating for Bosch Ltd include: delay in implementation of changes in
emissions norms and localisation challenges.

Valuation Methodology and Risks: (12 months) for Tata Motors Ltd. (TAMO.BO)
Method: We set a sum-of-the-parts (SOTP)-based target price of Rs470 for Tata Motors. We value the domestic business (Rs103/share) at 8x
Dec-17E EBIDTA (earnings before interest, depreciation, tax and amortisation). We value JLR (Rs341/share) at 3.5x Dec-17E EBIDTA,
Rs 37 for China JV, along with other subsidiaries (Rs25/share) and net of debt (Rs35/share). We have Outperform rating as believe that
JLR is now entering a phase of volume acceleration, even with poor mix margins should expand on platform consolidation and operating
leverage.
Risk:
The key risks that could impede achievement of our Rs470 target price and Outperform rating for Tata Motors include: a slowdown in the
Chinese luxury car market and a crackdown by the Chinese authorities on JLR's premium pricing in China which could have a significant
impact on its margins

Valuation Methodology and Risks: (12 months) for Wabco India Ltd. (WABC.BO)
Method: We value Wabco India Ltd. at a target price of Rs6,400 using a DCF (discounted cash flow) methodology. We assume a 8% CAGR in
content per vehicle and ~12% growth in domestic CV volumes driving ~20% growth in domestic revenue for the company. We assume a
risk-free rate of 8% for the Indian market and 15% as the market return which gives us a cost of equity of 12%. We have an
OUTPERFORM rating as we view Wabco as a strong structural story on the back of a multi-year rise in content per vehicle.
Risk:
Risks to our Rs6,400 target price and OUTPERFORM rating for Wabco India Ltd. include: a slowdown in CV which would put pressure on
both volumes as well as content per vehicle. Knorr so far has been a weak second player in the market; if Knorr is able to scale up faster
than expected, that too will have a significant negative impact on WABCO
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the
target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (ASOK.BO, TAMO.BO, CONG.DE, EPED.PA, JCI.N, AXL.N, VLOF.PA, MOSS.BO, 7267.T, VOWG_p.DE, MAHM.BO,
1114.HK, 005380.KS, RENA.PA, 2238.HK, F.N, BMWG.DE, 0489.HK, 600104.SS, GM.N, 000270.KS, PCAR.OQ, VOLVb.ST) currently is, or was
during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
36
21 March 2016
Credit Suisse provided investment banking services to the subject company (ASOK.BO, TAMO.BO, AXL.N, VLOF.PA, 1114.HK, 2238.HK, F.N,
BMWG.DE, 0489.HK, 600104.SS, GM.N) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (VOWG_p.DE, 005380.KS, BMWG.DE, GM.N, 000270.KS,
VOLVb.ST) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (ASOK.BO, TAMO.BO, AXL.N, VLOF.PA,
2238.HK, F.N, BMWG.DE, GM.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (ASOK.BO, TAMO.BO, AXL.N, VLOF.PA, 1114.HK,
2238.HK, F.N, BMWG.DE, 0489.HK, 600104.SS, GM.N) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ASOK.BO, TAMO.BO,
WABC.BO, EPED.PA, BWA.N, JCI.N, AXL.N, VLOF.PA, ALV.N, MOSS.BO, 7201.T, 7203.T, 7267.T, 2333.HK, MAHM.BO, 1114.HK, 005380.KS,
RENA.PA, 2238.HK, 0175.HK, F.N, BMWG.DE, 0489.HK, 600104.SS, GM.N, 000270.KS, HROM.BO, PCAR.OQ) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (VOWG_p.DE,
005380.KS, BMWG.DE, GM.N, 000270.KS, VOLVb.ST) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (LEA.N, DLPH.N, BWA.N, JCI.N, AXL.N, ALV.N,
7201.T, 7203.T, 7267.T, F.N, GM.N, PCAR.OQ).
Please visit https://credit-suisse.com/in/researchdisclosure for additional disclosures mandated vide Securities And Exchange Board of India
(Research Analysts) Regulations, 2014
Credit Suisse may have interest in (BOSH.BO, ASOK.BO, TAMO.BO, WABC.BO, BFRG.BO, EXID.BO, EICH.BO, MOSS.BO, APLO.BO, MAHM.BO,
MRTI.BO, BAJA.BO, HROM.BO)
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (VLOF.PA, APLO.BO,
2333.HK, MAHM.BO, PEUP.PA, 0489.HK).
For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.
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Credit Suisse Securities (India) Private Limited...................................................................................................... Jatin Chawla ; Akshay Saxena
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37
21 March 2016
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21 March 2016

India Commercial Vehicles

Where are we in the cycle?

Total Freight transportation growth

% share of roads (RHS)

Source: MORTH, Planning Commission, Indian Railways, Credit Suisse estimates

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

Focus charts and table

Figure 3: Railways have high share only in mined

road freight rates broadly flattish in the same period

commodities, roads better on rest

Road Freight Rates

Rail Freight Rates

Share of freight movement by roads

Source: Indian Railways, IFTRT

Source: MORTH, Planning Commission

Figure 4: Roads have gained large market share in some

Figure 5: Despite sharp growth in truck tonnage supply

individual segments like mining, cement, etc.

added in, utilisations have remained under control

Growth in freight Ton-km truck capacity (Supply)

Growth in road freight index (demand)

Share gain by road (FY11-16)

Source: MORTH, Planning Commission, Credit Suisse estimates

Source: MORTH, Planning Commission, Credit Suisse estimates

Old Vehicles Ban

Proposal to ban >15-year-old trucks to control pollution

Regulatory changes such as emission norms, compulsory ABS

Likely impact and timing

Source: Company data, Credit Suisse estimates

Figure 8: We prefer Bosch and WABCO as content per

been highest in first two years of upcycle

vehicle stories over Ashok Leyland

Stock returns (indexed)

Figure 7: Ashok Leyland's stock returns have typically

Number of days post cycle start

India Commercial Vehicles Sector

M&HCV content increase (Rs/Vehicle)

Source: Company data, Credit Suisse estimates

Where are we in the cycle?

Despite a slowing economy

Factors beyond the cycle

Scrappage and emission

whilst GST and DFC

Prefer Bosch, WABCO over AL

India Commercial Vehicles Sector

Expect CV cycle to remain

% revenues: domestic M&HCV's OEM

Target Price (Rs)

Bharat Forge (Standalone)

Source: Company data, Credit Suisse estimates

Figure 10: Auto OEM valuation

CY16/FY17 CY17/FY18 CY16/FY17 CY17/FY18 CY16/FY17 CY16/FY17

General Motors Corp.

Hyundai Motor Company

Weichai Power Co. Ltd

Mahindra & Mahindra

Ashok Leyland Ltd

Figure 11: Auto-components valuation

CY15/FY16 CY16/FY17 CY15/FY16 CY16/FY17 CY15/FY16 CY15/FY16

Johnson Controls Inc

Motherson Sumi Systems